If you’re running a successful, profitable restaurant or accounting firm you can reasonably expect to sell the business for a handsome sum.
A motivated buyer will happily finance a comfortable retirement if he or she stands to inherit a track record of steady profit, a team of well trained, motivated staff and well-equipped, well maintained premises.
But what does a buyer gain from a small, home-based operation with no premises and few – if any – employees?
Plenty, as it happens, and in fact home businesses are bought and sold for decent sums all the time (there are always plenty of home-based businesses for sale on this site). The basic principles that apply to selling bricks-and-mortar businesses actually hold true with home-based businesses as well, although the latter do present some unique considerations.
The basic business-selling principles
The following best practices apply equally well to most kinds of business sale, and that includes when you’re selling a home-based business:
Keep records organized and up to date. A prospective buyer will want to objectively assess the profitability of your business by means of tax records, profit-and-loss statements and other vital business records. If your records aren’t available or are badly organized or not up to date, you’ve probably lost the sale.
Run your business professionally right up to the sale. Don’t let yourself fall prey to the natural human tendency to coast once you know you’re leaving. The months or weeks leading up to completion of the deal are when the buyer is likely to be most observant of the business’s performance. Slack off and they might reconsider or try to renegotiate the price downwards.
Improve the curb appeal. Relating to visual first impressions – primarily of the premises’ interior and exterior – this principle may apply less to a home-based business than a bricks-and-mortar venture. Nevertheless, you might be selling a branded vehicle as part of the deal, in which case keep the vehicle looking clean and well maintained.
You will certainly have a website – it may be utterly central to your business if you get most or all of your custom online, as many home-based businesses do these days. So your ‘virtual’ curb appeal will matter too.
Therefore make sure you correct any easily-rectified problems with your website, whether they relate to usability or aesthetics.
Arrange for the business to run smoothly without you. Be sure to arrange affairs so that the prospective buyer can see themselves stepping into the role of owner without a dip in performance or revenues.
Easy enough if you buy in stock wholesale for an online retailer; the value of your business will reside in the website’s SEO ranking, usability and visual appeal rather than your own skills. Of course, your IT skills may have been instrumental in building the website, but it’s easy enough nowadays to maintain a successful website without coding skills.
Nevertheless, you can still build trust by advising the buyer on how to run the website. After all, there are probably no employees to help out once you’ve officially left the business.
The value of a service-based business, however – for example if you hand-craft wedding invitations from home – would largely depend on your personal skills – which brings us to the next section.
Factors unique to home-based businesses
If the value of your goods or services is largely contingent on your personal skills – whether it’s you’re personal and professional relationships or technical knowhow – then a prospective buyer could justifiably assume the business can’t thrive without you.
For this reason don’t waste your time on buyers who don’t possess the requisite skills. If you elicit interest in, say, your home-maintenance business from a ‘dreamer’ with no background in the trade, then you can expect them to withdraw when reality dawns on the buyer – unless they’re looking to bring in staff and can prove they have the financial means to do so.
The best way to handle this situation is to be transparent up front with prospective buyers and eventually, customers. You'll need a rock solid plan on how you can pass business goodwill on to the new business owner.
As part of the business sales negotiation, you can offer to stay on in a consultative capacity for 1-2 months after the sale to smooth the transition. This will help the new owner get up to speed with their role and ensure customers do not experience any drop in service quality.
Whether you hire a business broker or not may depend on the size of your home-based business. Your revenues and customer base may simply be too small to justify the commission.
Subtract 10-12% from a realistic sale price (though comission isn't quite as important as finding the right broker). If you’re dissatisfied with the amount remaining then you can expect the broker won’t be very motivated by his share of the deal either.
For this reason it may be advisable to sell your home-based business yourself.